The euro: Year of the Pigs

The Chinese are just coming to the end of the Year of the Ox; financial markets, however, have just begun the Year of the Pigs. By Pigs, blunt-tongued traders do not mean the roving four-legged sources of bacon, but Portugal, Italy, Greece and Spain – four countries in the European single-currency club with mountains of debt and full-square in the sights of financial-market vigilantes. (Add on Ireland, also precariously positioned, to get Piigs – and the equivalent of a European investors' watchlist.)

What does the Year of the Pigs look like? One need only visit Athens this week, where EU officials have flown in to crawl all over the government's plans to cut borrowing. Or one could look at the comments made yesterday by George Papaconstantinou, Greece's finance minister, insisting that his country will not need a bailout. That is what the year will be all about: southern European politicians hotly denying that their troubles will get much worse, even while there are frantic scenes backstage to check that this is actually true.

The four Pigs are all very different, of course. Yes, they all racked up big budget overdrafts last year – but so did most of the industrialised world, in a bid to stave off economic crisis. Besides, there is a world of difference between Spain's public debt at 53% of national income (comparable to UK levels) and Greece's 113%. Even at that level, Athens is still some way from defaulting on its debt, Buenos Aires-style. But where the City brigade is surely right is in seeing a problem for one as a problem for all – not just across southern Europe, but for the whole eurozone. After all, about three-quarters of Greek bonds are held outside Greece, mainly in the rest of Europe, so meltdown there will soon spread to the rest of the continent's banks, raising the spectre of another leg in the financial crisis. And big trouble in one of the euro's 16 member states was always going to be treated as a critical test of the entire project.

It is a test that the eurozone politicians and officials are failing. Confusion reigns on whether other states will support Greece if financial markets turn against it. No, said a senior European central banker yesterday. Yes, said German chancellor Angela Merkel last month. But if she believes that "what happens in one member state affects all others", where is her rescue plan? Apart from occasional statements of support, the strategy being followed by the euro group appears to be that Greece must do an Ireland – make its own swingeing cuts in public spending and hope that keeps markets happy. That may be less costly to Germany and the rest, but it is highly risky. The eurozone needs a plan B – and to remember that clubs which do not stick together eventually come apart.